Friday, May 20, 2005

Visteon Plants Come Home

According to the Detroit News, in order to keep Visteon from going bankrupt, Ford will take back 15 parts plants and their unionized workforce.

If the agreement is completed, Ford is likely to take back Visteon's Rawsonville Road powertrain component plant in Ypsilanti and its axle plant on Mound Road in Sterling Heights, said the people familiar with the agreement. The other 11 to 13 factories would be spun off into a separate holding company which Ford would control. Those plants would then be sold to other auto suppliers if possible.

This is bad financial news for Ford, if the deal goes through. Ford will have to satisfy the UAW, and buy out about 5000 workers, according to the article. Then they will likely have to sell the plants at a steep discount, since the are not profitable operations. Going by the state of the auto supplier business at the moment, few if any suppliers will have the cash to buy 13 parts plants. They could even wind up in the hands of a Chinese upstart.

Once again, the Visteon spin-0ff looks like it was a mistake. If Ford wanted to get into the global auto parts business, it could have used a different arrangement, such as having Visteon as a partially owned subsidiary. If Ford was going to have to eat the money losing plants anyway, they could at least have profited from the parts of Visteon that are making money. Or if Visteon was a wholly owned subsidiary, like Hertz, Ford would be able to get its parts "at cost", without having to pay a markup to ensure a Visteon profit.

But hindsight is always clear--at the time of the Visteon spin-off, the road ahead may have looked much smoother, and a profitable Visteon may have been more than just a fantasy.